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Whistleblowers will get cash rewards for helping nab tax cheats

Finance Minister Jim Flaherty takes part in a press conference after meeting with private sector economist in Ottawa on Friday March 8, 2013. Flaherty is signalling he'll concentrate on skills training, infrastructure and the battered manufacturing sector in Thursday's budget. Photo: THE CANADIAN PRESS/Sean Kilpatrick

OTTAWA — The federal government is pledging to close tax loopholes and crack down on international tax evasion with a series of new measures — including cash rewards to whistleblowers — that it expects will save the government and taxpayers potentially billions of dollars a year.

The Conservative government, in its federal budget tabled Thursday, will also eliminate some business tax breaks while extending others, as it looks to rein in a deficit currently estimated at nearly $26 billion and balance the books by 2015-16.

With international pressure mounting for countries to combat offshore tax evasion, the Conservative government is vowing to do more to collect the tax revenue it’s owed and track down tax cheats. But it’s promising to do so while chopping $61 million a year by 2015-16 from the Canada Revenue Agency’s operations.

The government says the CRA will overhaul its enforcement programs by targeting non-compliance in the highest-risk areas — including deploying teams of specialists to pursue tax evaders — vowing it will “improve effectiveness and help to preserve the integrity of the tax system.”

The Harper government expects the new compliance measures will generate an additional $550 million in annual tax revenue by 2014-15.

The CRA will also launch the Stop International Tax Evasion Program aimed at reducing international tax evasion and avoidance.

Under the program, the agency will pay rewards to whistleblowers, of up to 15 per cent of the federal tax collected, for information leading to tax assessments exceeding $100,000.

The rewards will only be paid where the questionable activity involves foreign property, or property located or transferred outside Canada, or transactions conducted partially or entirely outside Canada. However, reward payments will be subject to income tax.

Individuals convicted of tax evasion in connection with the non-compliance will not be eligible to collect rewards.

“We’re not looking for rogues to turn in other rogues,” Flaherty said.

A number of other countries such as the United States, United Kingdom and Germany already provide rewards for information on tax evasion.

Other measures include improving the process for the CRA to obtain information concerning unnamed persons from third parties such as banks, and requiring some financial intermediaries – including banks – to report international electronic fund transfers of $10,000 or more.

The Harper government is also promising to close dozens of corporate and personal tax loopholes, and improve the overall fairness of the tax system — measures it expects will save more than $300 million in 2013-14 and nearly $1 billion by 2015-16.

Flaherty said some of the tax loopholes the government is closing are “very sophisticated . . . but they result in tax consequences that are not good in terms of revenue.”

Changes to the dividend tax credit are expected to save the government more than $500 million annually by next year, and is one of the biggest loopholes being closed.

The credit — which provides preferential tax treatment to Canadians receiving dividend income from some corporations, rather than if the individual had earned the income directly — is expected to affect a number of small firms.

“Some small businesses will react to that, there’s no question,” said Dan Kelly, president of the Canadian Federation of Independent Business.

The CFIB, however, is hoping the government will compensate for the move by lowering the 11 per cent small business tax rate once the budget is balanced.

“It makes it a lot easier to swallow a dividend tax credit change when the actual rate is coming down,” Kelly said.

The larger issue of tax evasion, both at home and abroad, is stealing potentially tens of billions of dollars in revenue from federal coffers and ultimately sapping money out of taxpayers’ pockets.

Dennis Howlett, executive director of Canadians for Tax Fairness, said his group wanted to see a sizeable funding injection for the CRA’s international compliance division. Instead, the agency is facing broader funding cuts.

The government “could be talking about tens of billions of dollars of additional revenue” if it took more aggressive action on closing loopholes and fighting tax evasion, he said.

“It’s a good start,” Howlett said. “They need to do more.”

Tax evasion is one of the main themes to be discussed when leaders from the Group of Eight’s large industrialized nations — including Prime Minister Stephen Harper — meet in June at the G8 summit in Northern Ireland.

Domestically, the federal auditor general warned last year that the Canada Revenue Agency was unable to adequately assess and track tax cheats across the country due to limited resources and weak oversight and enforcement practices.

Senior Parliament Hill reporter for the Ottawa Citizen, politics junkie, wannabe pro golfer and someone who has wordsmithed at newspapers in Ontario, Alberta and Saskatchewan. I've covered politics at... read more every level, including city hall in Ottawa and Calgary, the Alberta legislature in Edmonton and now back in Ottawa covering the Hill.View author's profile